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Number of Suppliers

In the music recording industry, the suppliers to the recording companies are the raw materials providers as well as artists and other talent such as writers and producers. The raw materials that are used in the recording industry consist of supplies such as blank CDs, cassettes, recording equipment and other rather homogenous products. Because there are many suppliers of these raw materials within this industry, record labels have the ability to choose the supplier with the lowest price thus decreasing their costs and increasing their profits.

Product Differentiation

There is also a large pool of talent, which is favorable for the firms because it gives the recording companies more negotiating power. Some may argue that product differentiation is high because, for example, there is only one "Jay Z". At the same time, however, for every music genre there is a whole handful of popular artists signed to different record labels. This allows the largest record companies to play most of the cards while still being able to employ artists for many different music genres. Product differentiation for raw material suppliers is even lower. Low product differentiation among artist and raw material suppliers decreases costs for incumbent firms and increases their profits.

Threat of Forward Integration

The threat of forward integration for suppliers of raw materials is very low. It is very costly for this kind of supplier to create their own record label. However, forward integration among artists and musicians is a common occurrence. This is problematic for the record labels because it creates more competition. Increased competition acts negatively on incumbents in the industry.

After analyzing and weighting the number of suppliers, distinctiveness of their inputs, and their threat of forward integration, it is evident that supplier power is low in the music industry. Because of low supplier power, record labels have the ability to achieve increased profits. The diagram above to the right summarizes my analysis of supplier power and its effect on the music recording industry.